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South Korean Bonds Gain on Speculation Europe to Ease Policy

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May 15 (Bloomberg) -- South Korea’s government notes advanced, sending the 10-year yield to the lowest level in more than six months, as bets Europe will ease monetary policy drove global bonds higher.

The European Central Bank is preparing multiple measures against low inflation, Executive Board member Yves Mersch said yesterday. The U.S. 10-year yield touched 2.52 percent yesterday, the least since Oct. 31, while German and French rates fell to the lowest in 12 months. The Bank of Korea raised its 2014 growth forecast to 4 percent from 3.8 percent on April 10, citing strong exports and improved domestic spending.

“South Korean bonds were supported by speculation about ECB easing,” said Jung Won Suk, head of fixed income division at LS Asset Management in Seoul. “That, combined with doubts about whether this year’s growth can match the BOK’s 4 percent forecast, pushed bonds higher.”

The yield on the 3.5 percent sovereign notes due March 2024 declined seven basis points to 3.38 percent at the close in Seoul, the lowest for a benchmark security since Oct. 30, according to Korea Exchange prices. The yield on the 3.125 percent bonds maturing in March 2019 fell five basis points, or 0.05 percentage point, to 3.06 percent.

The Bank of Korea is ready to act against herd behavior in the currency market, Lee Seung Heon, head of the monetary authority’s foreign-exchange market team, said in Seoul yesterday. South Korean authorities may have bought more than $1 billion on the currency market yesterday to prevent the won from strengthening beyond 1,020 against the greenback, the Korea Economic Daily reported.

The won advanced 0.3 percent to 1,025.25 per dollar, according to data compiled by Bloomberg. It touched 1,028.40 yesterday, the weakest level since May 6.

“Some investors with long positions on the dollar unwound their bets as the smoothing operation wasn’t so strong,” said Park Dae Bong, a Seoul-based currency trader for Nonghyup Bank. “Exporters were also selling dollars.” A long position is a bet an asset will rise in value.

(An earlier version of this story was corrected because of a misspelled company name.)

To contact the reporter on this story: Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly, Amit Prakash

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